Microfinance and Inequality

Abstract

The paper examines the relationship between microfinance and inequality by providing a cross-country empirical study of 61 developing countries. We show that microfinance plays an important role in creating a financial system endowed with the equalizing effect. Thus far, only a few single-country analyses of the impact of microfinance on inequality have been performed. To the best of our knowledge, our study is the first to indicate the universality of the equalizing effect of microfinance by applying the cross-country methodology. We find that microfinance can lower inequality and that poorer countries need to focus more on the equalizing effects of microfinance.